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JUL 27, 2017

Three keys to survival from Japan Inc’s centuries-old firms

By Yoshihiko Takubo

Over 90% of start-ups fail.

Creative destruction and constant change are a central part of doing business.

Yet, some companies survive for generations, outliving their founders.

Why is this?

Meet the centuries-old company.

In the world of business, Japan is something of an outlier.

Japan has over 26,000 companies that have been trading for 100 years.

Out of all businesses in the world over 200 years old, 40-45% are in Japan.

In fact, Japan has 600 businesses aged 300, 190 firms over 400, and an incredible 40 companies with over 500 years of history!

The keys to longevity

Students at the GLOBIS University Nagoya Campus looked into this, examining 69 key Japanese companies over 300 years old.

They discovered three main characteristics which allow these companies to survive (and thrive) for this long.

1.  It’s all about core competence

The companies in the study have survived a lot of history.

They traded through Japan’s Sakoku period of deliberate isolation (beginning in the 1600s).

They survived the Meiji Restoration (1868), the Sino-Japanese War (1894) and the Russo-Japanese War (1904).

They survived World Wars I and II.

Naturally, the products and services they sell have changed significantly over time.

But because these companies were able to deeply understand their own strengths and spent time thinking how to produce value, they were able to thrive.

So, the first secret to endurance is: understand your company’s core competence.

Now, let’s look at some newer examples: Fujifilm (founded in 1934) and Kodak (1888).

Although they are relatively young, both were successful film manufacturers, but due to the advent of digital cameras, their customer base vanished.

Kodak presumably thought that their core competence was the “tech to create film.”

As a result, they were not able to adapt quickly enough and went bankrupt in 2012.

On the other hand, Fujifilm noticed that their core competency was the “technology to apply extremely thin film.”

This small change made a huge difference.

Fujifilm used their know-how in thin films to branch out, creating the successful cosmetics business Astalift in 2016.

From iron tools to integrated circuits

Okaya & Co. (1669) began trading agricultural and iron products across Japan, but centuries later became major importers of computer chips from Intel.

How did they make this shift?

Okaya acknowledged that their core competence was the ability to “synchronize relationships.” Or, put simply, for every seller there is a buyer.

From that moment, their business was no longer limited to traditional products and could revolve around the very latest technology.

Japanese sake manufacturer Gekkeikan (1637) notes that their core competency is the ability to “scientifically merge intuition and experience.”

As a result, they have expanded their business in a variety of new ways, even doing what was once thought impossible: producing sake in America.

2.  Know your market

Enduring companies also do business in fields where change is slow.

For example, the basic model of hotels and Japanese ryokan inns has not changed significantly over time. They generally only need to provide customers with food and a place to sleep.

The restaurant and construction industries are similar.

Yet, for modern consumer electronics, such as mobile phones, the core value they provide changes frequently.

It is extremely difficult to keep up with the rapid pace of change, and the chances of long-term survival are slim

3.  Keep it simple

Long-lasting companies also tend to focus on products and services for which changes in functionality are small.

Take sake and Japanese confectionery. These industries change slowly and their essential value does not shift significantly, so they naturally endure longer.

How about a sector like the automotive industry?

The functionality of cars has not altered much since they were first introduced.

However, research shows that when there are changes—such as shifting from gasoline to hybrid vehicles and electric cars—the shifts are huge.

This makes the operating risks much bigger.

As we can see, there is much to be learned from studying the past.

If you want your business to live-on for centuries remember these keys:

1. Recognize your core competence.
2. Know your market.
3. Keep it simple.

Who knows?

If you follow this advice, that new business idea you have could end up outliving you.